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Offerings in the Offing

A Killing Frost

By

Jacqueline Doherty

Updated Dec. 4, 2000 12:01 a.m. ET

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T he sharp selloff in the broad equity markets last week deepened the chill that has settled over IPOs. The performance of deals completed earlier in the year continues to deteriorate and new issues have slowed to a trickle.

The statistics are sobering. Consider that 66% of this year's IPOs trade below their offering price. In 1999, only 22% of IPOs fell below their initial price. A look at first-day performance doesn't make the picture much brighter. An IPO that was sold in October or November gained 15%, on average, on its first day of trading. That's well below the results from January or February, when the average IPO gained more than 100%, according to Richard Peterson, a market strategist at Thomson Financial Securities Data.

Last week's results were no better.
Rigel Pharmaceuticals
, which develops oral drugs, was the only deal to price over the five-day period. It sold five million shares at $7 each. The shares climbed 11 cents on the first day of trading, for a 1.57% return that day.

But at least Rigel priced its deal. Telcobuy.com withdrew its pending IPO for up to $100 million last week because of market conditions. The company provides a vendor-neutral, Internet-based business-to-business marketplace for telecommunications infrastructure products and services. PetSmart.com, an online pet products retailer, shelved its $115 million offering as well. And Ansell Healthcare's hopes of offering 8.7 million shares were also dashed.

Through Wednesday, 26 deals were postponed or cancelled in November and 39 were sidelined in October. "We've had nine consecutive weeks of less than 10 deals" actually pricing, notes Peterson. The last time the market slowed so dramatically was in April and May, when the equity markets last fell off a cliff. And Peterson notes that with the holidays rapidly approaching, the new-issue machine may not crank up again until late January or early February. That, of course, presumes the market bounces back or at least stops falling.

This week about seven deals are slated, but their fate depends on how the equity markets perform. As you might expect, many of the coming deals are from companies in notoriously old-fashioned industries. For example, W.P. Stewart is a money manager, and Harvard Bioscience develops and sells tools used in drug-discovery research. Both expected to hit the market this week.

A return to Old Economy stocks is somewhat logical given that those are the types of IPOs that fared best in 2000. The new issue of doughnut king
Krispy Kreme
rose 238.8%, putting it in the top spot for performance so far this year, according to Thomson Financial Securities Data. Just behind that sweet achievement is
First Horizon Pharmaceutical
, an over-thecounter-drug company, and
Sonus Networks
, which develops communication network software. They're up 214% and 213% respectively.

O ne of the larger deals scheduled to brave the markets this week comes from Garmin, which manufactures navigation and positioning devices used in boats, planes and cars. These devices can even be held in one's hand to help those of us with no sense of direction.

The devices use Global Positioning System technology that was first developed by the Defense Department. In May, the government dropped an "intentional accuracy degradation" policy for non-military users, and the system's accuracy improved from about 100 meters to 10 meters or less.

Garmin hopes to sell 7,875,000 shares on its own behalf and 2,625,000 on behalf of selling shareholders through Credit Suisse First Boston and Merrill Lynch at $15-$17 each, for total proceeds of around $168 million.

Senior executives aren't among those selling shares, however. In fact, senior management will continue to own more than half of the company's shares after the IPO. Executives and Garmin's research and development facilities are based in Kansas, its manufacturing facilities are in Taiwan and its distribution facilities are in Europe. The company is incorporated in the Cayman Islands.

Garmin's prospectus is reassuring because it shows the company has been in business since 1989 and actually generates earnings. Last year Garmin posted sales of $232.6 million and netted $64.2 million, an increase of 82% from the prior year. About 27% of revenues came from Garmin's aviation business; the rest aren't broken out.

One concern, however, has to be whether the company's sales will slump if the economy is about to enter a soft or hard landing. The luxury boating market will likely slow with the economy. Whether economic softness could be offset by our growing fascination with consumer devices is anyone's guess.

However, in 1998 Garmin generated net income of $35.2 million, down slightly from the $36.1 million earned the prior year. The company fails to explain in the prospectus why it experienced a hiccup. That said, at least the company has earnings, unlike many of the concept stocks sold over the past year. And a boating enthusiast friend of ours claims their products are among the best in the business. Not a reason to buy in and of itself, but a comforting thing to know.

T hird Wave Technologies of Madison, Wisconsin, has delayed its public offering until market conditions improve; the registration statement remains in effect. Last week's Offerings in the Offing reported that the IPO had been killed.

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